Latest Studies - November 2019

This PowerPoint report discusses economic forces affecting property/casualty (P/C) insurance, provides an overview of business lines, and gives special attention to the state of employment in the industry. In an analysis of 53 economic indicators, most see slow growth in the economy in the second half of 2019 and throughout 2020. The report also discusses the construction industry and housing; workers compensation; and vehicle sales and healthcare. A special section explores employment in the U.S. P/C insurance industry and discusses employment by sector; weekly hours worked; employment cost growth; and "computer occupations." Full report

Small businesses are increasingly concerned about cyberrisk, but many are still reluctant to insure against it. Based on a survey of more than 500 small business leaders, insurers, and insurance service providers, this paper addresses businesses continued hesitation and discusses cyber-related loss trends and how firms and their insurers are addressing these perils. About 35 percent of all firms surveyed said they have cyber insurance, up from 31 percent in 2018. Of those without cyber coverage, 36 percent indicated they were “probably” or “definitely” likely to purchase a cyber insurance policy in the next 12 months, up from 30 percent in 2018. However, of the 44 percent of respondents who said they do not currently have cyber insurance and the 21 percent who said they do not know whether they do, 64 percent said they do not plan to purchase a cyber insurance policy in the next 12 months. While this is down from 70 percent in 2018, it remains a concerning number. Nearly 71 percent of respondents said they are “very concerned” about cyber incidents, up from 59 percent in 2018, and 75 percent said they believe the risk of being victimized by a cyberattack is growing at an alarming rate – up from 70 percent in 2018. Full report

Data breaches are becoming more expensive for small businesses and threaten consumer trust, according to this study conducted by the Bank of America Merchant Services which covered 522 small businesses based in the U.S., as well as 509 consumers who utilize small firms. The study found that 21 percent of small businesses reported a data breach in the last two years, and that 41 percent of small businesses had data breaches that cost them in excess of $50,000 up from 31 percent in 2017. These breaches continue to have dire consequences on the survival of small businesses, as 29 percent of customers surveyed stated they would never return to a small business that experienced a breach, up 20 percent from two years prior. Full report

This report projects that global cyber losses will reach $6 trillion annually by 2021. Additionally, cybersecurity spending will surpass $1 trillion from 2017 to 2021. One of the costliest potential consequences of a data breach is a reputation crisis, which can have a direct link to a loss of shareholder value. A 2018 study conducted by Pentland Analytics and Aon also found that a company’s preparedness to mitigate reputational risk and its management’s behavior in the immediate aftermath of a crisis can add 20 percent to its share value, but that a lack of preparedness can result in losses of up to 30 percent. Full report

This study by FM Global found that the most commonly anticipated losses from cyberattacks are often not covered by insurers. Seven in 10 financial executives from the world’s largest companies falsely believed losses like “degradation of the company’s brand/reputation” and “decline in market share” would be covered by insurance in the case of a cyberattack. However, one of the most frequently cited concerns, “new costs to mitigate the loss,” which includes expenses such as restoring data and equipment, would be covered by cyber insurance or property insurance. Litigation would also be covered by third-party insurance. Still, more than half of the financial executives surveyed stated that financial recovery from a substantial cybersecurity event would take months to years. News Release

According to this report, the U.S. property/casualty (P/C) insurance industry underwent a significant deterioration in loss ratios for general liability from 2015 to 2018. This trend is expected to continue as issues surrounding the extension of statute of limitations for sexual abuse claims, opioid litigation, and increased jury awards continue to roil the industry. The rise in loss ratios may be due, in part, to rate decreases. Data from the Council of Insurance Agents and Brokers (CIAB) showed that general liability rates dropped between 2014 and 2017. However, aggregate premium grew by 16 percent during that period, indicating a steep rise in exposure growth. Claim severity has also increased over the past few years, due to marked changes in social, economic, and legal dynamics. However, the liability market grew at an average of 6 percent a year since 2014, with demand only expected to increase.

According to an analysis by J.D. Power, the rate of auto insurance customer loyalty has fallen to 48 percent, down from 59 percent in 2004. The rate of customer loyalty is measured by consumers who will “definitely renew” their policy with their current carrier. According to the article, the rate of switching among insurance shoppers has increased to 35 percent from 31 percent over the past year, helping drive down overall customer retention. The article states that a steady bombardment of advertisements encouraging consumers to shop and switch their auto insurance providers is affecting customer loyalty. The author says a shift in consumer interaction with insurance carriers is a factor as well, pointing out the convenience of shopping for quotes from home. The perception of rising rates is also seen as a key factor affecting customer loyalty to their existing carrier. Full text

This annual review and forecast of the life settlements market found that the 2018 life settlement market continues to build on prior years’ growth. This third consecutive year of increasing annual volumes provides a foundation for stronger growth moving forward. “Several life settlement funds announced the launch of new funds or the successful closing of funds which reflects the continued interest of capital in the asset class,” said Scott Hawkins, a Director, Insurance Research at Conning. “Looking beyond 2019, key drivers are favorable for continued growth in the life settlement market. Life settlements remain an appealing alternative asset class to investors seeking higher potential returns, relative to the current low interest rate environment. In addition, this year’s study examines the positive impact wider consumer marketing could have on growth.” The study is available for purchase from Conning by calling (888) 707-1177 or by visiting www.conningresearch.com.

A new study by Swiss Re Institute alongside the London School of Economics aims to transcend traditional measures of economic strength by introducing a methodology to quantify insurance protection gaps. These measures intend to demonstrate how the insurance industry makes society more resilient, despite the global economy’s weakened ability to deal with severe fluctuations, particularly since the financial crisis 10 years ago. Among other points of note, the study found that the Swiss and Canadian economies are reliably among the most resilient; that advanced economies have become less resilient, while emerging ones have become more so; and that there has been marked advances in property catastrophe resilience in advanced markets, and in mortality protection in emerging economies. Full report

This analysis of non-medical opioid use by the Society of Actuaries (SOA), authored by Milliman, indicates that the cost of the epidemic to the U.S. economy totaled at least $631 billion from 2015 through 2018. The analysis also projects the cost of the epidemic for 2019 based on three scenarios of development, which had low and high estimates of $172 billion and $214 billion, respectively, and a midpoint cost estimate of $188 billion. The article summarizes the financial effects of the epidemic in the following areas of the economy: healthcare; premature mortality; criminal justice activities; child and family assistance and education programs; and lost productivity. Absenteeism, reduction in the participation of the labor force, incarceration for crimes related to opioids, and employer costs for disability and workers compensation benefits to employees suffering from disorders linked to opioid use comprised 15 percent of the $631 billion financial burden of the epidemic during the period. Full report

This group of studies examines workers compensation in 18 states, covering 2012 through 2017. The states analyzed—Arkansas, California, Florida, Georgia, Illinois, Indiana, Iowa, Louisiana, Massachusetts, Michigan, Minnesota, New Jersey, North Carolina, Pennsylvania, Tennessee, Texas, Virginia, and Wisconsin―constitute over 60 percent of the country’s workers’ compensation benefit payments. Each study encompasses research on payments, prices and utilization of medical care for people injured while working, as well as the effect of the workers’ compensation system on legislation and other regulations. The studies also cover trends in medical payments per claim and cost components across states. The research aims to provide analyses of workers compensation costs and trends to assist policymakers and other stakeholders. The studies are available for purchase (free to WCRI members).

The GAO has recently undertaken efforts to further investigate potentially unsafe unmanned aircraft system’s (UAS) operations. GAO met with the Federal Aviation Administration (FAA) safety inspectors, who stated that although they make efforts to educate operators and enforce penalties, they still may not be able to acquire information necessary for investigations. Indeed, a majority of the law enforcement stakeholders GAO met with (nine of 11) believe that officers may not know how to respond to UAS incidents, nor are they certain what information to share with the FAA. The FAA, despite stating the role that law enforcement can play in investigating UAS operations and creating resources to manage these cases, has not actively communicated this information to law enforcement agencies. Additionally, the FAA has failed to create more holistic analyses of UAS safety data and incidents. The FAA now acknowledges that the increasing use of UAS requires not only new information, but also supplementary studies on which oversight methods have been effective. These issues will only grow in importance as the FAA’s role in monitoring UAS operations continues to expand. Full report